California officials release results of first cap-and-trade auction

California businesses subjected to the nation's only cap-and-trade policy were able to buy emissions credits at pennies above the minimum price when the state held its inaugural auction for emissions allowances last week.

The auction, held Wednesday, ended with affected industries purchasing greenhouse gas emissions allowances at a price of $10.09.

That amount is nine cents above the minimum price set before the California Air Resources Board held the auction. The board sold more than 23.1 million emissions allowances - worth more than $252 million in sum - via the auction.

California is the only state in the Union with a cap-and-trade program designed to reduce greenhouse gas emissions by setting a "cap" of maximum allowable greenhouse gas emissions. It is part of Sacramento's attempt to put the state in the front to reduce the impact of climate change and air pollution.

Affected industries can buy, or "trade," emissions allowances if they cannot otherwise reduce their emissions below the government-set maximums. Companies that need allowances but did not obtain them at auction, can purchase them on commodities exchanges.

The price Wednesday may minimize cap-and-trade's immediate impact on businesses and consumers, a representative of the state's Air Resources Board said.

"We're OK with that too, because the cost of compliance won't be too high," agency spokesman Dave Clegern said.

Cap-and-trade affects refiners, utilities and large manufacturers. A $10 price per-allowance is estimated to add 10 cents to the price of gasoline when it goes into effect next year.

In the program's first year, the state is requiring companies to reduce emissions to 90 percent of current levels.

Cap-and-trade major part of A.B. 32, the law then-Gov. Arnold Schwarzenegger signed in 2006 to reduce global warming. The policy is at the center of yet another chapter in the long-running debate over whether California's environmental laws are innovative or a burden to commerce.

In the views of regulators, cap-and-trade will raise revenue for anti-pollution efforts while requiring some businesses to include greenhouse gas emissions as part of the cost of doing business.

Clegern said cap-and-trade can be expected to not only reduce emissions, but also encourage venture capitalists to invest in firms producing anti-pollution technology, such as fuel cell vehicles or autos running on an electrical charge.

Influential industry groups, however, point out that cap-and-trade still raises the cost of doing business in California and continue to oppose the program.

"California employers paid hundreds of millions of dollars for carbon credits during the first cap and trade auction last week. Instead of hiring workers, expanding production, or investing in new carbon-reducing equipment, these auction dollars will be distributed by government for other purposes," Dorothy Rothrock, vice president of the California Manufacturers & Technology Association said in a statement.

Another influential industry group, the California Chamber of Commerce, is trying to block cap-and-trade with a lawsuit.

Utilities also fall under cap-and-trade, but state officials are attempting to manage the program so that residential utility bills do not spike next year.

The state Public Utilities Commission is proposing a rule that would return cap-and-trade revenues to utility customers in the form of rebates and rate reductions. The rule could be approved at the Commission's Dec. 20 meeting.

The Rosemead-based utility and other companies will have to deal with higher costs because of cap-and-trade, Stern said. He also expects the program to lead to investments in more efficient forms of electricity generation.

Edison's position on cap-and-trade is that the program would likely be more successful if the regulations were imposed evenly nationwide. That said, the company prefers regulations with market-based components to narrow targets set by government officials.

"Generally speaking, we support market mechanisms like cap-and-trade than choosing a bunch of specific rules," Stern said. "If you choose a bunch of specific rules, it might be more costly than market mechanisms."